BNSF chief concerned about effect of service switching

Friday, March 08, 2013

The rail industry opposes a competitive switching proposal made by the National Industrial Transportation League that is being considered by federal regulators both because it is a “property rights question” and for service reasons, said Matthew Rose, BNSF chairman and chief executive officer.
The NIT League proposal, which is backed by several other shipper groups, would make it easier for shippers to make railroads switch freight from one railroad to another.
“It is something that on the face of it sounds so logical, but, quite frankly, behind all this is a property rights question,” Rose said.
He noted BNSF gets about 250-300 new customers each year and about two-thirds chose to locate their businesses on a location where they are solely served by the BNSF.
“We hear the arguments, but if things are so bad, why would two-thirds of our new customers siting plants on our facilities do it with single serve facilities?” Rose asked.
“There are certain customers who want access only to our network and only to our service. So it is a complex issue and at the end of the day, I think most shippers would say this is all driven by a service-related issue,” he said.
Noting the service challenges Union Pacific Railroad had following its merger with Southern Pacific, Rose said he was concerned about what would happen if the competitive switching proposal was passed and “you have a railroad that gets into a service-related problem - the thought of another railroad going in there and making things only worse.”
Rose made his comments after giving a luncheon address at the Journal of Commerce's TPM 2013 conference in Long Beach, Calif., where he said the rail industry has continued to invest heavily in its networks – about $10 billion annually - to improve service and capacity, even after the industry went into a sharp downturn during the recent recession.
BNSF will invest $4.1 billion in 2013, about $500 million more than in 2012—including $2.3 billion on its core network and related assets; $1 billion on locomotives and freight cars; about $550 million for terminal, line, and intermodal expansion; and $250 million for positive train contol. The company will complete a 440-acre facility in Kansas City that was built at a cost of $250 million and will be capable to of handling 500,000 containers and trailers annually. It's the third new logistics park the railroad has built in the past decade.
The railroad has announced plans to build a large new intermodal yard north of the Ports of Los Angeles and Long Beach.

Rose

Rose said because of capital improvements, railroads can now operate longer trains, have been able to increase siding speeds, and operate more fuel-efficient locomotives.
He explained due to lower volumes and the capital improvements, service has improved, and BNSF had a record car velocity last year.
BNSF's volumes peaked in 2006, and bottomed out in 2009 with auto, lumber, aggregate, and intermodal volumes all declining 30-40 percent, he said.
Rose said about a quarter of BNSF's trade involves international intermodal cargo. Last year, BNSF's Asia-Pacific volumes grew 4 percent and they are now 24 percent above 2009 lows, and 70 percent above 2000 levels.
International container volumes fell from 30 percent in 2006 to 23 percent.
Rose noted increased transloading on the West Coast has resulted in some decline for international containers moving inland, and the Midwest drought this year reduced containerized grain shipments moving in international containers.
Rose said his railroad is frequently asked about what the effect of the opening of the widened Panama Canal in 2015 will have on West Coast rail operations.
“I view it as a Rubik's Cube—you have to lay out all the various pieces—bunker fule prices, labor costs, labor uncertainty on both coasts , the Panama Cana fees, rail rates and productivity as well as ever important transit times.
“You as our customers will review all of these issues and make your decision,” Rose said. “But we hould stand by the known truth the going the all water routes is a longer route upward of 10-12 days.
“In the end our belief is that the West Coast Ports and the Western railroads will continue to serve the Midwest and Ohio Vallew. If we dont keep oour market share in those areas it will be because we are simply doing something wrong,” he said.
Today Rose said the West Coast ports handle about 70 percent of transpacific trade
Since 2010, Rose said rail volume growth has been modest, but the mix of services on BNSF has changed greatly: movements of petroleum products have grown from 1 percent to 4 percent, industrial products from 16 percent to 18 percent, and domestic intermodal from 20 to 24 percent. Coal volumes have fallen from 24 to 22 percent and forestry products have fallen from about 10 percent to 4.5 percent last year. - Chris Dupin